Relying on labor unrest as a shock to local social stability, we show that state-owned enterprises (SOEs) react to nearby unrest by creating additional employment at the expense of productivity. Such effect is larger when labor unrest is in the exposed SOEs’ industries, local fiscal budgets are solid, governing mayors are better incentivized, and local private sectors grow slower. SOEs obtain more fiscal benefits. Contrarily, non-SOEs do not react to labor unrest, and their performance is unaffected. Various tests mitigate the selection effects of labor unrest. Aggregated results show SOEs can alleviate adverse economic and social impacts of labor unrest.

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